Optimal Auction Design with Discrete Bidding
We develop the theory of optimal auction design in a discrete bidding model. Examples show that many of the equivalence results or other well-known results may fail in an auction with discrete bidding. We show that the optimal auciton problem, however, has a similar solution. We formulate a payoff formula which is a discrete version of the one for the continuous bidding model. We show that an optimal auction must satisfy the payoff formula, and the payoff formula is used to reduce the problem into the design of winning rules. We then use a simple algorithm and the duality theory of linear programming to build a general solution of the problem.
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|Date of creation:||May 2004|
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